NEW YORK (MarketWatch) — Economists may have declared the 2007-09 recession over, yet the pain lingers.

Unemployment has hit younger and older workers, males and African-Americans especially hard. But one group is paying the biggest price: Blue-collar U.S. manufacturing workers have suffered disproportionate job losses, and their plight has big implications for all of us.

In October, the overall U.S. unemployment rate was 9.6%, while total unemployment and “underemployment” (including people who would prefer to work full-time but currently aren’t) topped 17%.

In addition, the disparity between white-collar and blue-collar unemployment is stunning: 4.5% among college graduates versus 10.8% for those with a high-school diploma, and 14.3% for those without one. Read why economist Gary Shilling thinks it’s not a real recovery on MoneyShow.com.

The likely reason is a precipitate decline in U.S.-based manufacturing employment. The United States has been losing those jobs for years, but the pace of the decline picked up steeply in the past decade and during the recession.

Although some big, U.S.-based multinationals recently have announced plans to add production facilities here, this hemorrhage of manufacturing jobs puts us in danger of losing our competitive edge and missing out on the jobs of the future.

The adjacent table tells the story.

From its peak of 19.5 million in 1979, manufacturing employment declined, on average, by about 1.5 million jobs a decade until 2001. Then it fell off a cliff: America lost 2.5 million manufacturing jobs from 2001 to 2007 and almost that much again during the latest recession.
So, nearly 5 million American manufacturing jobs have disappeared since 2001, an astonishing 29% plunge in less than 10 years. The United States has lost more than 42,000 factories during that time.

Clearly, it was a “lost decade” for far more people than investors in U.S. stocks.

The number of U.S. workers employed in manufacturing is at its lowest level since 1941 — when our factories became the “arsenal of democracy” that helped win World War II. Where have you gone, Rosie the Riveter?

The hollowing out of U.S. manufacturing would make it hard for us to do that now. Whole industries practically have picked up and left the United States — textiles, furniture and many electronic components.

Natural, free-market forces have driven most of it. The technological revolution has helped companies boost productivity sharply, so they need fewer people to produce the same amount of goods.

“During the late 1990s, productivity growth in … manufacturing accelerated … averaging 4.1% annually over the 1995–2007 period,” the Congressional Budget Office reported. “As a result, productivity in manufacturing has risen by about one-third since 2000.”

Of course, globalization has triggered explosive growth in lower-cost emerging markets, especially in Asia, and they have become formidable competitors in an amazingly short time.

Margaret McMillan, an associate professor at Tufts University, has studied the impact of foreign competition on U.S. manufacturing. She said the declining price of computers, greater U.S. penetration of imports and shifting production to lower-wage countries have caused the big decline in U.S. manufacturing employment.

“We find that offshoring … is responsible for a downsizing of the American workforce,” according to McMillan, who added big companies that shift jobs overseas need advanced technology to manage vastly expanded global supply chains.

China joined the World Trade Organization in 2001, opening the floodgates on both offshore production and competitive imports, although it only accelerated trends that had been in place for years.

The decline of American manufacturing may be part of an evolution to a world in which developing countries produce more goods and developed countries focus on high-end design and engineering.

But it threatens not only our technological edge, but also the basic premise of the American dream.

Because of the cost differential, the United States is getting very few manufacturing jobs out of the most promising, fastest-growing technologies, like smart phones or alternative energies like photovoltaics.

True, much of the design and engineering for Apple Inc.’s (NASDAQ:AAPL) iPhone 4 is done domestically, but virtually none of the components or hardware is manufactured here, said Tina Teng, senior analyst with iSuppli of El Segundo, Calif.

“Manufacturing is all about labor costs,” she noted. “U.S. labor costs are much higher than [in] Southeast Asia.”

“We can’t compete with China on labor costs. There’s just no way,” said McMillan from Tufts.

The United States has all but stopped making printed circuit boards, while in 2007, only 8% of new semiconductor-manufacturing plants were located here.

Increasingly, vital technologies and critical sources of production are based in potentially hostile countries like China and vulnerable ones like Taiwan.

The weaker dollar and concerns about intellectual property have prompted a countertrend, as companies like General Electric Co. (NYSE:GE) and Intel Corp. (NASDAQ:INTC) have announced major expansions of their U.S.-based production facilities.

GE will invest $432 million to upgrade four refrigerator-manufacturing facilities, adding about 500 jobs. Chief Executive Jeff Immelt has become increasingly skeptical of doing business in China. Read Howard Gold’s commentary on China’s challenge to the U.S. on MoneyShow.com.

Intel, which sells 75% of its chips overseas but makes 75% of them here, will invest some $6 billion to $8 billion upgrading and expanding its operations in Oregon and Arizona. (It also just opened a $2.5 billion wafer fab in Dalian, China.)

The next-generation facilities will create up to 8,000 construction jobs to build the fabs and as many as 1,000 new permanent positions.

“The new jobs will be a mixture of technicians who need at least a two-year college degree or military experience in the electronics field, and engineers who need a B.A. or master’s level in a variety of engineering disciplines,” Intel spokeswoman Christine Dotts said in an email.

I commend GE and Intel for their decisions, which are no doubt based on solid bottom-line calculations. Big targeted tax breaks by local governments also were critical to both companies’ moves.

These and similar actions will create maybe thousands of jobs here, a tiny fraction of the millions lost in the past decade.

Former Intel chief Andy Grove, who gambled big — and won — on billion-dollar U.S. manufacturing facilities a generation ago, worries about “a general undervaluing of manufacturing — the idea that as long as ‘knowledge work’ stays in the U.S., it doesn’t matter what happens to factory jobs,” he wrote in Bloomberg BusinessWeek.

“But what kind of a society are we going to have if it consists of highly paid people doing high value-added work — and masses of unemployed?” he asked.

The American dream is based on the idea that if you work hard, you and your children can do better. For decades, U.S. blue-collar workers could save money, buy homes, put their kids through college and have decent retirements.

Now, manufacturing is under siege, security is nonexistent and many blue-collar jobs are dead ends rather than stepping stones.

Creative destruction is the engine of capitalism, and it has benefited us more than any other nation. But who could have imagined the shoe would now be on the other foot? Watch John Mauldin’s video on the end of the debt supercycle on MoneyShow.com.

Howard R. Gold is executive editor of MoneyShow.com

(What the article does not mention is that 60% of R&D is done in manufacturing plants so when we lose the plants we lose the R&D. The article also doesn't say how knowledge jobs are being offshored as well with software being a case in point. This country won't recover until we protect ourselves with tariffs and national manufacturing economic policy. That won't happen since the Republicans are Wall Street plutocrats and most of the Democrats have been bought by Wall Street plutocrats. No one represents the middle class worker in Washington any longer.

Wall Street only cares for short term gains irregardless of the damage to the country as a whole. With our blind adherence to forty years of "free" trade policy we have sown the wind. Now we are reaping the whirlwind of economic disaster. It will get worse before it gets better and that won't happen until Wall Street finance is dethroned as the dominant sector of the economy. - mesa)